UPS returns to profit, revenue growth ahead of crucial holidays; shares jump By Reuters

By Ananta Agarwal, Lisa Baertlein

(Reuters) -United Parcel Service reported better-than-expected quarterly profit and revenue on Thursday, ahead of the crucial peak holiday season, boosted by rebounding volume and effective cost controls and shares soared as much as 10% in early trading.

The world’s biggest package delivery firm also raised its full-year adjusted operating margin forecast despite customers’ ongoing switch to slower, cheaper deliveries in the long retrenchment that followed the early pandemic’s e-commerce boom.  

“We returned to revenue and profit growth the first time in two years,” CFO Brian Dykes said on a conference call with analysts.

Shares hit a high of $145.01 early in the trading session before retreating to $138.25, up 5%, by mid-morning.

UPS reported an adjusted third-quarter profit of $1.76 per share, a 12% year on-year rise that topped analysts’ average estimate of $1.63 per share. Revenue was up almost 6% to $22.2 billion.

During the third quarter, volumes in its dominant U.S. business grew at the highest rate in more than three years, Dykes said.

However, a large portion of the growth has been driven by China-linked, bargain e-retailers Shein and Temu.

That business unexpectedly swamped the UPS network in the second quarter, exacerbating the shift from premium air services to less expensive ground services and then to the even more low-profit SurePost services, where UPS picks up packages and hands about 60% of them off to the U.S. Postal Service for final delivery.

Amazon.com (NASDAQ:), which is the largest customer at UPS, also contributed to the trend, and accounted for 100% of the reduction in air volume in the third quarter, CEO Carol Tome said.

Tome added that retail customers have tempered volume expectations for the year-end holiday season. That’s because Thanksgiving falls late in November this year, resulting in fewer shopping and delivery days. That could mean more in-store vs. online purchasing this year, she said.

UPS now expects a full-year operating margin of 9.6%. It had slashed that forecast to 9.4% in July.

“UPS seems to be controlling what it can,” said Jonathan Chappell, equity analyst at Evercore ISI.

“Posting a solid, nearly all-around beat after two years of misses and lowers” will confirm the view that “fundamentals and stock price have bottomed,” Chappell said.

UPS also has been onboarding the United States Postal Service air cargo business, which it took over from rival FedEx (NYSE:), after its contract expired on September 29. 

UPS has said it expects the five-year USPS contract to be profitable in its first year.

“They’re headed in the right direction,” Faisal Hersi, industrials senior analyst for Edward Jones, said.